So much has changed in the private equity industry since then, it's easy to forget that the 2004 buyout of product lifecycle management software company UGS was the largest technology buyout completed up to that point.
If the bigger tech buyouts done since then turn out as well, the industry is in for some heady returns. Three private equity buyers of the unit of Texas-based EDS each invested roughly $333 million in equity in the more than $2 billion deal. Less than three years later, Silver Lake Partners, Bain Capital and Warburg Pincus stand to see a 2.5 times return on this investment following a sale agreement with Siemens. The firms had planned on holding on to the asset a bit longer, but decided Siemens' price was too good to turn down.
For Warburg Pincus, the UGS exit comes amid good tech times. After merging two of its industry practice groups last year to form the technology, media and telecommunications (TMT) team, that group is enjoying a particularly strong harvest season. In January, the TMT team completed its exit from Institutional Shareholder Services, which provides proxy voting and corporate governance services. The $550 million sale to Risk Metrics will net Warburg Pincus a 12-times return. According to a source, TMT has a few more exits in the works from its worldwide portfolio of 43 companies.
TMT is led by managing directors Pat Hackett and Jim Neary, who have been with Warburg Pincus since 2000 and 1990, respectively. Prior to joining Warburg Pincus, Hackett worked at merchant bank Cove Capital Associates. Neary previously worked at Chase Securities and Credit Suisse.
Before the two teams joined forces, Warburg Pincus managed two distinct practice groups called Information and Communications Technologies and Media and Business Services. But the two groups' activities overlapped significantly. “We constantly found ourselves going to each other's group meetings,” says Neary.
Hackett and Neary are quick to point out Warburg Pincus' “one fund” approach to investing – the proceeds from the TMT group are shared across the entire firm, and the TMT group equally enjoys the successes of the other industry groups and geographies.
LOWENSTEIN TO FIGHT ‘KNOWLEDGE GAP’
In his first public comments since becoming the leader of the newly established Private Equity Council, Douglas Lowenstein said he wants to help fill the “knowledge gap” that Washington policymakers have of the private equity industry. Lowenstein, formerly the president of the US video game industry lobbying group Entertainment Software Association, wants to prove that private equity does in fact benefit the entire US economy he said in an interview with the Financial Times. “The level of understanding of private equity in policy circles is extremely low,” he told the FT. “There is both a lack of understanding and a lack of knowledge and either of them is problematic from a public policy standpoint.”
PCG SPIN-OUT NAMES CEO, CHAIRMAN
PCG Asset Management, the new spinout of gatekeeper Pacific Corporate Group, has appointed David Fann as CEO and Gerard Drummond as board chairman. Fann has been a managing director with the firm since October 2006. PCG AM spun out from Pacific Corporate Group in February as an independent firm, in which a handful of its 30-some employees will eventually own up to a 50 percent stake. “There's nine of us that own stock in PCG AM, and it ranges from vice presidents to managing directors,” Fann said in a recent interview. “We own right now 25 percent of the company and we expect to own another 25 percent.” Continuous turnover among its senior investment professionals has worried some of PCG's heavyweight clients.
UPSIZED FIDELITY HIRES APAX PARTNER
Fidelity Ventures, a venture capital firm affiliated with mutual funds giant Fidelity Investments, has hired Roger Hurwitz. Hurwitz was a partner in the New York office of Apax Partners, the global private equity firm based in London. At Fidelity, Hurwitz will concentrate on laterstage growth equity investments. In related news Fidelity has increased the size of Fidelity Ventures IV to $400 million from $250 million, in party to better take advantage of the growth equity opportunities it sees in the market. Fidelity Ventures has offices in Boston and London. Sister fund Fidelity Asia Ventures manages over $220 million from Shanghai and Hong Kong.
SKM CO-FOUNDER, APAX PARTNER LAUNCH FIRM
Two partners from global private equity firm Apax's US retail/consumer division have founded Karp Reilly, a Connecticut-based private equity firm focused on middle market consumer companies. Chris Reilly, the division's head, will be leaving Apax in the next few months, along with colleague Allan Karp. Karp joined the UK-headquartered firm in 2005 after its US arm merged with Saunders Karp & Megrue, the New York firm he cofounded in 1990. He – along with cofounder John Megrue – became a cochief executive officer of Apax's US operations following the merger, which was to bolster Apax's US presence. Two other executives have recently left Apax's US division: former marketing director Laura Brightsen and former chief financial officer Evelyn Pellicone.
IR PRO LEAVES GOLDMAN FOR WARBURG
New York-based private equity firm Warburg Pincus has hired John Shearburn. Shearburn recently left Goldman Sachs, where he headed the investment bank's private equity marketing. He joined Goldman Sachs in 1997, serving as the president's chief of staff, and moved to the private equity group in 2000. He became a managing director in 2005. Prior to his tenure at Goldman Sachs, Shearburn worked as a marketer with computer services firm Endata. From 1985 to 1996, he worked as a US diplomat in countries including Mexico, Nicaragua, and the Netherlands. Warburg Pincus' investor relations/fundraising team is led by Steven Schneider and consists of W. Bowman Cutter, Puja Dhanraj, and Rosanne Zimmerman. The firm's last fund, Warburg Pincus IX, closed on $8 billion in August 2005.
RIVERSTONE NABS METALMARK PRO
John Moon, a former managing director at Morgan Stanley spin-out Metalmark Capital, has joined Carlyle energy affiliate Riverstone Holdings as a managing director. Moon is currently an adjunct professor of finance at Columbia University. Moon said in statement that he's known Riverstone's founders for years, “as friends and friendly competitors. Now I am delighted to have the opportunity to join them as a business partner.” An energy-focused private equity firm, Riverstone was founded in 2000 by David Leuschen and Lapeyre, and has raised three energy-focused funds in partnership with The Carlyle Group. Riverstone has committed $5.4 billion to 34 investments across midstream, upstream, power, oilfield service, and renewable energy sectors. The firm currently manages more than $7.9 billion in capital.
ELEVATION LOSES CO-FOUNDER RICCITIELLO
John Riccitiello, a managing director and co-founder of Menlo Park-based upstart Elevation Partners, has left the firm to return to his former company: Redwood City, California-based videogame company Electronic Arts. He will be the company's chief executive officer and will join its board of directors. Riccitiello was president and chief operating officer of Electronic Arts from October 1997 until April 2004. He used his experience in the videogame industry to help Elevation secure deals in that area, including its debut transaction in November 2005. That deal involved the merger of videogame developers Pandemic Studios and Bioware Corp., an Edmonton, Canada-based company. Riccitiello's move follows another loss at Elevation – music veteran Les Bider left his position as the firm's “executive-in-residence” to become chief strategist at Los Angeles-based venture firm ITU Partners.
Below is an excerpt from a statement by US Senator Chuck Grassley, an Iowa Republican, issued on March 7. Grassley is the ranking member on the Senate Committee on Finance. He favours hedge fund registration, and is reportedly looking into potential legislation that would recharacterise carried interest as ordinary income, which comes with a much higher tax rate.
“Sunshine can do a lot of good… The secretive way that hedge funds operate might not be an issue for the super rich who first invested in hedge funds, but today the average Joe has a stake as pension funds are invested in hedge funds. Right now a hedge fund isn't required to report even basic information about who runs the fund… My amendment gives Congress a good opportunity to say there should be greater transparency with hedge funds.”
Below is an excerpt from testimony given by James Chanos before a US House of Representatives Committee on Financial Services hearing on March 13 called “Hedge Funds and Systemic Risk in the Financial Markets”. Chanos is the founder and president of hedge fund Kynikos Associates. Although Congress began its scrutiny of the alternative investment market with an inquiry into hedge funds, the financial services committee has announced its intention to hold hearings on the private equity industry. The March hedge fund hearings are discussed in further detail in Stateside, beginning on p. 24.
“[A]lmost all private investment pools – whether a hedge fund, venture capital fund or private equity fund – share many common characteristics in terms of their disclosures to their investors and counterparties without detailed government mandates. Consequently, we would suggest that policymakers, instead of creating distinctions between these types of entities, treat all private pooled investment vehicles similarly, regardless of their underlying investment strategies. Even though we may all use the term “hedge fund” in the context of today's hearing, the most accurate phrase is not “hedge fund” as much as “private investment company.”